Bait and switch - Page 2

The draft financing plan for Lennar's southeast development keeps getting sweeter for the troubled company

And we are not looking to break ground for another three years, by which time the economy, hopefully, will be in good shape."

Maduli-Williams also observed that despite nationwide housing woes, San Francisco remains "one of two or three top destination spots where there is only so much land left and where folks have very high incomes."

But the health of the San Francisco real estate market (compared to the rest of the nation) combined with Lennar's ongoing financial woes, including a June 8 bankruptcy at Mare Island, is precisely why some folks are questioning Lennar's increased profit demands. But Maduli-Williams said, "San Francisco cannot be compared to Mare Island."

According to the draft financing deal (which is non-binding), Lennar, the city, and the agency "will work cooperatively to reduce risks and uncertainties" and "find additional efficiencies and values," to achieve Lennar's proposed 22.5 percent annual profit margin.

As Maduli-Williams explained, if the developer puts up $800 million in equity and wants a 22 percent return, it would have to get $1.2 billion in land sales. "And just like any developer, they want to get the highest return possible," he said, adding that the project's proposed community benefits are "hard wired into the deal" and thus are "not threatened" by Lennar's proposed target return increase.

Lennar's proposal, which represents a 7.5 percent increase over current project projections, has also received validation from CBRE Consulting, which is a subsidiary of CB Richard Ellis — a global real estate firm headed by Sen. Dianne Feinstein's husband, Richard Blum.

In an Oct. 15, 2008 memo (coincidentally written the day President Bush announced a partial nationalization of the US banking system) to Michael Cohen, who heads the Mayor's Office of Economic and Workforce Development, CBRE's Mary Smitheram-Sheldon and Thomas Jirovsky observed that, "Based on Consultants' extensive experience in evaluating large scale mixed-use developments, including military base reuse plans, we are of the opinion that the proposed 22.5 percent per annum target return reasonable."

Earlier this year, as Lennar spent $5 million to support Prop. G, CBRE declared that 50 percent affordability in Lennar's proposed mixed-use development at the shipyard, as was being recommended in Daly's Prop. F, was "not financially feasible."

At the city's request, CBRE analyzed Prop. F and concluded in a memo to Cohen that it would reduce Lennar's revenue by at least $1.1 billion. Reached by phone this week, Jivorsky acknowledged that his firm has done work for different developers around the country for years, including Lennar.

"But we are not working on anything for Lennar in San Francisco," Jivorsky told the Guardian. "Our client is the city of San Francisco and we take our job very seriously. We would never make recommendations that we didn't believe were in the city's best interests."

Meanwhile, Cohen told the Guardian that the strain for real estate capital is likely going to push the rate of return demand up even more. Noting that the city agreed to 25 percent returns at Lennar's previous Treasure Island and Hunters Point Shipyard deals, Cohen said, "Real estate is considered to be a greater risk than it was six months ago, even in San Francisco. So, it's not so much that we have to negotiate this as have to understand what is required for private capital to invest."

Cohen believes that when the construction plans — which currently have few details spelled out — get more detailed, they will help increase the project's rate of return. "Which is why," Cohen added, "the developer's partners are willing to spend a boatload of money."

On Aug.